After living off of student loans and ramen noodles, having your first paycheck hit your bank account is a big deal – but managing your first paycheck properly is an equally big deal.
What looks like a big number at first needs to cover everything – and unless you’re sticking to that ramen diet, your costs might have gone up with your income.
Luckily, there are a few different ways you can manage that paycheck to make sure you hit your short-term goal of making it to the end of the month, and some of your long-term goals, like bulking up your emergency fund.
Step one: Build a basic budget
Ugh, budgeting. It probably ranks somewhere up there with going to the dentist on your list of dreaded things, but having a plan for how you’re going to spend your new, regular infusions of cash doesn’t have to be a painful experience.
Try a percentage based budget
One of the easiest ways to get an idea of how much that paycheck can really buy is to break it down with some simple percentages. One of the recommended frameworks is the 50/30/20 mix.
- Spend 50 percent of your take-home income on necessities, like rent, food and bills
- Spend 30 percent of your take-home income on fun, like going out to eat, new clothes and lattes. (Mmmm, lattes.)
- Spend 20 percent of your income on saving for long-term goals, like retirement and building an emergency fund. (Because yup, you need one.)
There are a lot of other variations on percentage-based budgeting, but to get things started, try the 50/30/20 approach. If you find one category is consistently over the recommended percentage, then you’ll know it’s time to adjust.
Pay yourself first
Another easy way to approach your budget is to divide it into two categories: savings, and everything else. This is the pay-yourself-first approach, and it’s mainly concerned with making sure that you’re not buying so many lattes that you forget to save an emergency fund, or put money away for retirement.
To make it work, set up automatic transfers from your checking account to your savings account on the same day you get paid. You can automatically send that 20% savings into an account, and the rest of the money that’s left over is yours to spend as you see fit.
Know your fixed expenses
After savings, the next most important number to pay attention to is your fixed expenses. These are the non-negotiable, happens-every-month expenses that keep your life running, like rent, food and your internet bill. Oh and food. Can’t forget the food.
Add up what you’re planning to spend on any monthly expenses to get a total number. Even if you’re taking a pay-yourself-first approach, you should always make sure to keep an eye on your total spending, so you don’t accidentally overspend on fun, and end up with no money to pay your cell phone bill.
Step two: Manage your fixed expenses like a boss
Well… a frugal boss, that is.
Since fixed expenses, by definition, happen every month, one of the best ways to manage your new-grad paycheck is to keep a close eye on the expenses you’re committing to every month. They’re harder to change, and they’re also typically the biggest line items in your budget.
Roommates are the name of the game, especially if your new job is in an expensive city. The best advice I ever got was to keep living like a student for a few years out of school, which meant yes to roommates, no to shiny new apartments with granite counters. Keeping your rent low by following those rules will give you some much-needed flexibility to do all the fun things you want to do with your new paycheck.
To car, or not to car? That is the question.
In a lot of cases, your transportation options will be influenced in a big way by where you choose to live. If you can score a place near public transportation, and within a reasonable commute to work on said public transportation, you can probably get away with walking, biking and transit-ing – and that means very good things for that first paycheck, let me tell you.
While the total amount you spend on food will fluctuate, it’s going to be one of your bigger expenses every month – and it’s not really negotiable, because you need to eat. There are ways to cut down your food budget without going hungry that don’t involve living on ramen, and keeping your food costs reasonable will keep your budget happy.
Find out where your money actually goes
So you’ve built a budget, and kept your fixed expenses in check, but wait a minute… you’re still scrambling to figure out where all your money actually went at the end of the month.
This is where tracking your spending comes in. It’s great to have a plan for your money, but if you don’t watch where it goes in real life, that plan isn’t going to do much. Plus, it’s so easy to forget how quickly things add up during the month, or about those one-off purchases.
Now, tracking where your money goes doesn’t have to be hard, especially in today’s world of there’s-an-app-for-everything. One of the easiest ways to keep track of your cash is to sign up for Mint.com. It connects to your bank accounts and your credit cards, and will categorize your spending for you. Oh, and it’s free.
Cue: “I spent how much on restaurants and fast food last month?!”
Now, go enjoy that first paycheck
So you’ve got a plan for how to spend your newfound riches (aka your paycheck), you’re paying attention to your fixed expenses, and you’re tracking your spending. Friend, you are ready to rock that new paycheck.
You have so earned that latte (or that beer).
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